Death Toll Mounts, But Insured Loss Modest

Prudential Equity Group insurance analyst Jay Gelb, in a research note, agreed that although the economic and human toll of the event is devastating, the impact to the p-c insurance sector could be "modest." He said commercial properties likely insured in the region include vacation resorts, some marine exposures such as ships in ports, as well as possibly some infrastructureincluding airports and utilities.

Some hotel properties that may be impacted include Sheraton Hotels and Hilton International, which operates five properties in locations that were affected by the earthquake and tidal waves, noted Ms. Handrick.

However, while overall economic damages could run into billions of dollars, insured damages could only be "a fraction of this amount," Mr. Gelb explained, because most of the impacted areas are not heavily insured and it is unclear how much flood damage will be covered.

Among the companies Prudential watches, those with the most exposure to property-catastrophe reinsurance include RenaissanceRe, XL Capital and ACE Ltd. However, Mr. Gelb observed, "we expect none of these companies to incur significant losses."

One major U.S. insurer that might have some exposure in the affected regions is American International Group, according to Standard & Poors analyst Catherine Seifert. She said that in addition to property losses, business interruption claims also could emerge. However, she added that S&P doesnt see any of these insured losses as "significant" for AIG.

An AIG representative, Joe Norton, confirmed to National Underwriter that AIG has exposures in Southeast Asia, but said its too early to assess its losses. AIG Chairman Maurice Greenberg also issued a statement, saying that AIG managers and claims professionals are working in affected areas where the company has policyholders. He added that early reports suggest "AIG will not have significant business exposures or losses. We will provide updates when additional information becomes available."

Generally, most U.S. insurers have not participated in the Asian markets hit by the disaster, analysts noted, leaving the business in this region to domestic or European companies. Indeed, a number of European reinsurers told NU they would suffer some losses from the event. However, they said claims would be minimalmuch smaller losses when compared to the four hurricanes that hit the southeastern United States last year.

Ms. Handrick said Hannover Re has low exposures in Thailand, Sri Lanka, Malaysia, Maldive Islands and India. Hannover Re estimates that the tsunamis are likely to result in a loss of "lower-double-digit million euros" for the company, which would be immaterial to its 2004 earnings results. "We still expect $300 million euros in net profit for 2004. The current loss burden from Southeast Asia will not have any impact on our guidance," she said. "Its not comparable with the losses from the U.S. hurricanes. The exposures are much lower."

Anke Rosumek, a representative for Munich Re Group, called the disaster "a very severe human tragedy because of the high death toll. This has been the most severe earthquake within the last 40 years and the worst tsunami event in the last 100 years." However, she agreed that insured damages would not be severe compared to other natural hazards the industry faced in 2004.

In addition to relatively little p-c insurance coverage in the region, the tsunamis would only cause potential insurance claims from areas close to the coast, whereas the U.S. hurricanes affected a much broader area, Ms. Rosumek noted.

Representatives for Lloyds of London said "we expect our exposure to be limited to holiday resorts, personal accident, travel insurance and marine risks." Lloyds added in its statement that "communication links are currently restricted, so there is limited information coming out of the affected areas. As a result, it is not possible at this time to determine the extent of our exposure."

Chicago-based Fitch Ratings issued a report stating that insured losses stemming from the tsunami should "affect the Asian primary insurance market and the worldwide reinsurance market, including markets centered in Singapore, London and Bermuda." However, "while U.S primary insurers are not likely to incur material losses as the result of this event, some U.S. primary insurers may have modest exposure on property owned by multinational companies insured through policies issued by U.S. carriers."

Fitch hastened to point out that "at present, there are no reliable estimates of the insured losses resulting from this earthquake." However, Fitch added, "large economic losses will not necessarily result in large insured losses depending upon the extent to which insurance is in use in these locations. At present, it appears that a significant portion of the property damage is not covered by insurance, though that varies from country to country."

Fitch also noted that "because the earthquake and resultant tsunami occurred in December, the fourth quarter 2004 earnings of Asian primary insurers and reinsurers worldwide will be affected. However, the event occurred too late to affect Jan. 1 reinsurance renewal pricing. Nonetheless, pricing for retrocessional reinsurancereinsurance purchased by reinsurerscould be affected and many retrocessional policies renew on March 1."

Fitch warned that "losses to some regional insurers may be large. This may spur increased demand for finite risk reinsurance products that provide current capital benefits at the cost of reduced future earnings for the purchasers."

Reproduced from National Underwriter Edition, December 30, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.